MomentumOptions.com Pre-Market Update for 8/24/2020

Bulls and Bears Split Week

8:00am (EST)   

The market closed mostly higher on Friday as better-than-expected economic news and a possible push to pass a stimulus bill kept the bullish sentiment intact. The House is slated to reconvene this weekend to try to craft a stimulus bill with the Senate in the process of assembling a “skinny” $300 billion bill.

The gains helped push the major indexes to fresh record highs with the Nasdaq and S&P 500 extending their weekly winning streaks to 4-straight. However, it wasn’t enough to help the Dow and the Russell 2000 as they closed lower for the week with the latter down for the 2nd-straight session.

The S&P 500 added 0.3% with the afternoon and record peak hitting 3,399. Blue-sky territory and lower resistance at 3,400-3,425 was challenged but held. A move above the latter would be an ongoing bullish signal for additional strength towards 3,450-3,475.

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The Nasdaq was up for the 2nd-straight session and for the 4th time in 5 after adding 0.4% while testing a record high of 11,326. Uncharted territory and lower resistance at 11,300-11,400 was cleared and held. A close above the latter would indicate additional upside towards 11,500-11,600.

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The Dow rose 0.7% following the late day trip to 27,959. Near-term and lower resistance at 27,750-28,000 was recovered. A close above the latter would suggest a retest towards 28,250-28,500 and levels from late February. 

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The Russell 2000 was down 0.8% with the midday low tapping 1,545. Beginning of the month and upper support at 1,550-1,535 was tripped but held. A move below the latter would indicate further weakness towards 1,525-1,515.

For the week, the Nasdaq soared 2.7% and the S&P 500 was higher by 0.7%. The Russell 2000 lost 1.3% while the Dow was down less than a point.

Technology was the strongest sector for the 2nd-straight session after jumping 1.3% while Consumer Discretionary and Industrials gained 0.5% and 0.4%, respectively. Energy and Materials after were the leading laggards after falling 0.6%.

Over the past 5 sessions, Technology (+3.6%) and Consumer Discretionary (1.8%) were the strongest sectors. Energy (-5.7%) and Financials (-3.5%) were the leading sector laggards.

In economic news, Existing Home Sales surged a record 24.7% to 5,860,000 in July from a revised 20.2% bounce to 4,700,000 in June. Forecasts were for a print of 5,400,000. Single family sales were up 2.39% to 5,280,000 versus the 19.3% increase to 4,260,000. Condo/coop sales were 31.8% higher at 580,000 following June’s 29.4% pop to 440,000. The months’ supply of homes dropped to 3.1 from 3.9. The median sales price climbed to a record $304,100 from $294,500. Sales have been boosted by pent-up demand and record low mortgage rates, as well as some shifting consumer demands resulting from the pandemic. Meanwhile, low inventories are supporting the record high sales prices.

PMI Services Index for August climbed 2.7 points to 53.6, better than expectations of 51.9, after rising 1.1 points to 50.9 in July. The output and new orders components improved to their strongest readings since January 2019. The August services index surged 4.8 points to 54.8 after jumping 2.1 ticks to 50.0 in July, and is up from 50.7 a year ago. The employment sub-index rose to 55.2 from 51 in July and is the highest since February 2019. The composite index increased 4.4 points to 54.7 in August versus the 2.4 point gain to 50.3 in July.

Baker-Hughes reported the U.S. rig count was up 10 to 254 with oil rigs up 11 to 183, gas rigs down 1 to 69, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 662 rigs from last year’s count of 916, with oil rigs down 571, gas rigs down 93, and miscellaneous rigs unchanged at 2. The U.S. Offshore Rig Count was unchanged at 13 and is down 15 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and for the 4th time in 5 with the intraday peak reaching $166.33. Prior and lower resistance at $166-$166.50 was recovered. A move above the latter would indicate continued strength towards $167-$167.50. This area represents the gap lower from earlier in the month.

Rising support is at $166-$165.50 and the 50-day moving average. 

RSI remains in an uptrend with key resistance at 50 holding. A more above this level would suggest additional strength towards 55-60. Support is at 45-40.

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The S&P 500 Volatility Index ($VIX) had its 3-session winning streak snapped despite tagging an opening high of 24.47. Current and lower resistance at 24.50-25 was challenged but held for the 2nd-straight session. A close above the 25 level would suggest further upside towards 27.50-28 and the 200-day/50-day moving averages which just formed a death cross. 

This technical pattern is typically a bearish development that signals lower lows. This would be, however, a bullish signal for the market and the continued assault on record highs.

Near-term and upper support at 22.50-22 was also breached but held on the late day fade to 22.06. A close below the 20 level and the monthly low at 20.28 would be important bullish signals for the market. This would confirm the death-cross pattern for lower lows with additional gap-down and backtest potential towards the 17.50-17 area and levels from late February.

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The Wilshire 5000 Composite Index ($WLSH) was up for the 2nd-straight session and 4 of the past 5 with the 2nd half high kissing 34,770. An 8-session trading range remains in play with current and lower resistance at 34,750-35,000 getting cleared but holding. A close above the latter and last week’s all-time peak at 34,802 would be an ongoing bullish signal for a surge towards 35,250-35,500.

Support is at 34,500-34,250. A close below the 34,000 level would signal a breakdown out of the current range with additional weakness towards 33,750-33,500.

RSI has been flatlining for a couple of weeks with key resistance at 70 holding. A close above this level would suggest additional strength towards 75 and the early June peak. Support is at 65-60 with the latter holding since late July.

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The Spiders S&P Homebuilders ETF (XHB) rebounded to snap a 3-session slide with the late day high tagging $53.79. Near-term and lower resistance at $53.50-$54 was reclaimed. A close above the latter and the recent all-time top at $53.95 would be an ongoing bullish signal for blue-sky upside towards $54.50-$55.

Support is at $52.50-$52. A drop below the latter would signal a possible near-term top with additional pullback potential towards $51.50-$51.

RSI is back in a slight uptrend with key resistance at 75 getting tripped and holding. Continued closes above this level would suggest another run towards 80 and overbought territory from January and earlier this month. Support is at 70-65.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at 67.96% on Friday, down 2.91%. Upper support at 67.5%-65% was was challenged but held. A close below the latter would signal a retest towards 62.5%-60% and levels from late April. Resistance is at 70%-72.5%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 57.11%, down 0.2%. Current and upper support at 55%-52.5% was challenged but held. A close below 50%, and a level that has been holding since mid-July would signal additional weakness towards 47.5%-45%. Resistance is at 57.5%-60%.

I have updated our latest positions so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 28-9 (76%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records. Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades.

Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Stops” entered to close any trades or “Limit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the Daily‬ updates.

Rambus (RMBS, $13.38, down $0.19) 

RMBS November 13 puts (RMBS201120P00013000, $0.90, up $0.05)

Entry Price: $0.90 (8/21/2020)

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Friday’s low reached $13.25 with prior and upper support from late May at $13.50-$13.25 failing to hold. Lowered resistance is at $13.75-$14 and the 200-day moving average.

The 50-day moving average is on track to close below the 200-day moving average over the longer-term and why I went with the November puts. I have a target of $11-$10 by Thanksgiving and would be enough to easily double, or possibly triple, our entry price as the puts would be in-the-money by $2-$3.

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Advanced Micro Devices (AMD, $83.81, up $1.04)

AMD September 90 calls (AMD200918C00090000, $2.20, up $0.25)

Entry Price: $2.20 (8/21/2020)

Exit Target: $3.30-$4.40

Return: 0%

Stop Target: $1.10 

Action: Shares traded up to $84.41 with prior and lower resistance at $84-$84.50 getting cleared but holding. Support is at $82.50-$82. 

This month’s all-time high is at $87.29 and I believe there is a good chance $90-$95 comes into play on a close above the $87.50 level. I like the trade on any pullback as long as $75 holds into next month.

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Consumer Staples Select Spiders (XLP, $64.30, up $0.16)

XLP September 65 calls (XLP200918C00065000, $0.65, flat)

Entry Price: $0.85 (8/17/2020)

Exit Target: $1.70

Return: -24%

Stop Target: None

Action: Lower resistance at $64.50-$65 was challenged but held on Friday’s rebound to $64.39. Support remains at $64-$63.50.

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AT&T (T, $29.69, up $0.02)

T September 31 calls (T200918C00031000, $0.25, flat)

Entry Price: $0.50 (8/10/2020)

Exit Target: $1.00

Return: -50%

Stop Target: None

Action: Shares tested a high of $29.79 with prior and lower resistance at $29.75-$30 and the 50-day moving average getting cleared but holding. Support remains at $29.50-$29.25.

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